The dividends are exempted from taxes and one quarter is subject to the capital gains tax.
Heikki Niskakangas, a professor emeritus of corporate law at Aalto University, said last Wednesday that the measure could create situations where a company owner is subject to a tax rate of 26 percent on income that would be taxed at a rate of more than 50 percent in the case of a wage earner.
This motivates businesses to take out their income as dividends rather than salary.
The arrangement identified by the corporate Responsibility Watchdog takes it one step further: the business owner establishes a holding company that acquires shares in their business to increase the value of the business based on revenue potential - or 'hopes and predictions', as described by Niskakangas.
This makes it possible for business owners to mark the value so that they can withdraw the maximum of 150,000 euro in dividends.
The arrangement was utilized by three companies, according to Finnwatch. WTD Media, owned by Natalia Salmela, SP Lifestyle, which is owned by Sara and Mikko Parikka, and Auri Kananen, which is owned by Auri Kananen.
Salmela has defended the arrangement on social media. She asked on Instagram what she wanted to ask for a tattoo.
Niskakangas reminded Helsingin Sanomat that unlisted companies in such sectors often need to set up a holding company because they have the necessary wealth to take advantage of the possibility to the maximum extent.
Nevertheless, Kananen said, the corporate structure was created with the help of a professional to shield against possible legal action in the US. The tax benefits of the arrangement came as a 'bit of a surprise', she said in an interview with YLE on September 5th.
You won't lose all your money but they'll be safe there, she said, according to the public broadcasting company.
The preferential tax treatment of dividends has been described by industry lobbyists and policy makers as a competitive advantage that consolidates the solvency of businesses and encourages business owners to accumulate wealth in the business before reaping the rewards of their work at a reduced tax rate, said Juha-Pekka Raeste, a political and economic journalist at Helsingin Sanomat.
The tax exemption affects a significant number of entrepreneurs, who are wealthy, successful, or who resort to various methods to boost the value of their business. In its tax survey for this year, the ministry of finance said that the benefits were enjoyed almost exclusively by entrepreneurs in the highest income decile.
Unlisted companies paid out2.5 billion in dividends that were taxed at a reduced rate in 2021.